Oil Production Cuts to Be Barely Perceptible for Russian Companies

13 december 2016
| Rossiyskaya Gazeta

Russian oil companies are planning to increase oil production by 300,000 bpd, the target being slightly less than 11 million barrels by May 2017. This is what an agreement between 11 countries that are not OPEC member states provides for. Said agreement was reached at the ministers’ meeting in Vienna following many months of under-the-carpet dealing and many hours of finalizing negotiations.

Alexander KurdinDepartment for Fuel and Energy Sector

“This will help to prevent a significant price
collapse during the period of seasonal wakening of demand at the beginning of
the year, like it happened in 2015 and 2016 (when it resulted in ruble
crashes), and will speed up the transition to inventory clearance, which will
begin in the second half of 2017,” believes Alexander Kurdin, expert with the
Analytical Center. He forecasts further price rise.

This will all, however, be only possible if oil exporters
display an enviable degree of self-discipline, as the agreement does not
provide for any enforcement mechanisms, explains the expert. Mr. Kurdin pointed
out that in 2008 the OPEC member states had reached an agreement to cut oil
production by 4.2 million bpd, although those commitments were accomplished
only by roughly 66%: the actual reduction totaled less than 3 billion barrels.
But even that much had proved to be enough at the time for the prices to go up
from USD 40 up to 75 / Barrel.

For Russia agreement with OPEC basically means backsliding
to the 2015 production levels when they averaged 10.7 million bpd. “Taking into
account the impact that the implementation of this agreement is expect to have
on the prices, the planned cut is not going to be really perceptible for
Russian companies, for whom this is a rather helpful solution”, Mr. Kurdin
believes. Left beyond the scope of this agreement are major producers and
importers, the biggest among them are the US companies, who may benefit as a
result of the agreement reached granting them a respite due to stabilization of
prices, the expert concluded.